By Patrick Donahue - Dec 12, 2011 7:31 PM GMT+0700
Dec. 12 (Bloomberg) -- Russell Jones, global head of fixed-income strategy at Westpac Banking Corp., talks about Europe's sovereign debt crisis. Germany’s top central banker cooled speculation that the European Central Bank will extend its role as European leaders pressed their case that a new fiscal accord will deliver the region from its two-year-old debt crisis. Jones speaks with Susan Li on Bloomberg Television's "First Up." (Source: Bloomberg)
Dec. 12 (Bloomberg) -- Don Hanna, managing director at New York-based hedge fund Fortress Investment Group LLC, talks about European Central Bank monetary policy, the region's debt crisis and its implications for Asian markets. Investors are fleeing assets denominated in the 17-nation currency as European Union leaders fail to end concern that Italy and Spain would succumb to a sovereign debt crisis that forced Greece, Ireland and Portugal to seek bailouts. Hanna speaks with John Dawson on Bloomberg Television's "First Up." (Source: Bloomberg)
Germany’s top central banker cooled speculation that the European Central Bank will extend its role as European leaders pressed their case that a new fiscal accord will deliver the region from its two-year-old debt crisis.
Bundesbank President Jens Weidmann told the Frankfurter Allgemeine Sonntagszeitung yesterday that while the new accord represents “progress,” the onus is on governments rather than the Frankfurt-based ECB to resolve the crisis with financial backing. German Finance Minister Wolfgang Schaeuble said euro- area policy makers will now focus on implementing the Dec. 9 pact to strengthen budget rules as quickly as possible.
The Franco-German-led agreement, which provides tighter budget rules and an additional 200 billion euros ($267 billion) to the euro war chest, is part of an effort to reassure investors that Europe can master the crisis. ECB President Mario Draghi lauded the accord, stoking hopes among investors that the central bank might step up bond purchases.
“We’re baying for the ECB to do all the things it keeps telling us it can’t do,” George Magnus, senior economic adviser at UBS AG, said in an interview with Maryam Nemazee on Bloomberg Television in London today. “Maybe if the crisis worsens materially, which I suspect it will, the ECB can be a bit more flexible. But I don’t think that Draghi will do the kinds of infinite and open-ended bond purchasing which the industry actually thinks it should do.”
Ratings Warning
European stocks and the euro dropped today, with the single currency down 0.96 percent at $1.3258 as of 12:55 p.m. in Berlin, after Moody’s Investors Service said it will review the ratings of all European Union countries after the Brussels summit failed to produce “decisive policy measures” to end the crisis. Standard & Poor’s placed the ratings of 15 euro nations, including AAA rated France and Germany, on review for possible downgrade on Dec. 6 pending an assessment of the summit outcome.
Italy and Spain led a decline in peripheral euro-area bonds even as the ECB was said to buy Italian securities. Italian 10- year yields climbed 40 basis points, or 0.40 percentage point, to 6.73 percent, while Spanish 10-year rates increased 31 basis points to 6.02 percent. German 10-year bunds rose and two-year yields approached a euro-era record low.
Merkel’s ‘Breakthrough’
After the summit, Chancellor Angela Merkel said the accord set the region on a path to a “lastingly stable euro,” and “the breakthrough to a stable union has been achieved.” Merkel will address German lower-house lawmakers in Berlin on Dec. 14 on the summit’s outcome, her chief spokesman, Steffen Seibert, told reporters today.
The accord opens the way for the ECB to intensify its role in the crisis, Irish Deputy Prime Minister Eamon Gilmore said in an interview with Dublin-based broadcaster RTE yesterday. The ECB has signaled “that it would strengthen its role and enhance its role following the conclusion of an agreement,” he said.
“The ECB will have to gear up its purchases should market tension increase, there is simply no other option available,” Thomas Costerg, an economist at Standard Chartered Bank in London, wrote in e-mailed response to a Bloomberg News query.
European leaders have given themselves until March to complete the language for the new rulebook and plan to set up the region’s permanent rescue fund, the European Stability Mechanism, a year earlier than planned in 2012. They also aim to reassess plans to cap the overall lending of the ESM at 500 billion euros.
‘Can’t Lean Back’
“We need to work on making this happen quickly, because we have to regain the lost trust of the financial markets and investors across the globe,” Schaeuble said in an interview on Germany’s ARD television late yesterday. “We can’t lean back.”
Retiring ECB Executive Board member Juergen Stark said EU and euro-area institutions needed to take a “quantum leap” forward to overcome the crisis. In an interview with Germany’s Sueddeutsche Zeitung published yesterday, Stark called for a panel of experts to review budgets in the euro area, which could form the “nucleus for a future European finance ministry.”
The accord forged in Brussels came at the cost of marginalizing the U.K. after Prime Minister David Cameron refused to back the effort. The rift left leaders of the single- currency union with the prospect of fashioning an accord among themselves rather than amending the EU treaties. All nine of the 10 other non-euro members signaled they’ll go along with the pact after consulting their parliaments.
Clegg’s Disappointment
U.K. Deputy Prime Minister Nick Clegg, speaking on British Broadcasting Corp.’s “Andrew Marr” program yesterday, said he was “bitterly disappointed” by the summit result, which left the U.K. “isolated and marginalized” in the EU.
Leaders for the first time extracted a contribution from euro central banks of 150 billion euros toward the International Monetary Fund’s general resources. Another 50 billion euros will come from non-euro EU states. The accord’s signatories will confirm within 10 days how they will channel funds to the IMF, which could then be used to aid troubled European states. The hope is that other countries will join the IMF effort, Merkel’s government said today.
Chinese Vice Foreign Minister Fu Ying said that China will be part of international efforts to assist Europe.
“Europe needs a partner, they come to sell their bonds, that’s a partnership,” Fu, whose portfolio is European affairs, told reporters in Vienna two days ago. “They have to work out the terms, it should be a kind of relationship of cooperation.”
‘Forbidden by Treaty’
Draghi praised a “very good outcome” in Brussels, a day after he damped expectations that a deal would prompt the ECB to step up its bond-buying activities. “The mandate for redistributing taxpayer money among member states clearly does not lie in monetary policy,” Weidmann at the Bundesbank said in the newspaper interview published yesterday. “Financing of sovereign debt through central banks is and remains forbidden by treaty.”
Austrian Chancellor Werner Faymann cast doubt on the arrangement, telling the Salzburger Nachrichten newspaper that the accord struck in Brussels lacked “enough firepower to have a sustainable effect.” While the measures on budget discipline are a “big step forward,” rules on regulating financial markets, a European rating company and “European income via a financial transaction tax” are still missing, he said.
“Basically the principles are right but the details are missing,” Wolfgang Franz, who heads Merkel’s council of economic advisers, said in an interview with Bloomberg Television. “I am convinced the specialists on this area will work out details that will convince financial markets and they will get at least less nervous.”
To contact the reporter on this story: Patrick Donahue in Berlin at at pdonahue1@bloomberg.net.
To contact the editor responsible for this story: James Hertling at jhertling@bloomberg.net
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